Summary
In this decision, the House of Lords confirmed the decisions at first
instance and in the Court of
Appeal to the effect that cargo interests, and not the carrier, are
responsible for loss of or damage to cargo occurring during the operations of
loading, stowing, trimming and discharging the cargo, where - under the relevant
contracts of carriage - cargo interests had undertaken a) to perform those
operations and b) at their cost. This principle had been first enunciated by
Devlin J. as he then was, in the case of Pyrene v. Scindia [1954] 2QB 402, and
thereafter approved by the House of Lords in Renton v. Palmyra [1957] AC 149.
The House held that a departure from these rulings was not justified but
expressed no concluded view on the correct interpretation of Article III Rule 2
of the Hague-Visby Rules under English law

DMC’s Category Rating: Confirmed

Facts

The claimants (the shippers and receivers of a cargo
of steel and the voyage charterer of the Jordan II) claimed against the
defendant shipowners for damage to cargo, which, they alleged, was caused by
defective loading, stowage, lashing, securing, dunnaging, separation and
discharge. The owners argued that, under the terms of the charterparty and the
contract of carriage evidenced by the bills of lading, they were not responsible
for those cargo operations and, even if they were, they could recover an
indemnity from the charterers.

The charterparty was on the Stemmor Voyage Charterparty form,
designed for the carriage of ore, but on this occasion, used for the carriage of
steel coils from India to Spain. It was expressly governed by English law.
Clause 3 was entitled "freight" and provided "Freight to be paid
at and after the rate of US$… per metric tonne F.I.O.S.T. ["free in and
out stowed and trimmed"] - lashed/secured/dunnaged….". The term
F.I.O.S.T meant that the shipowner did not have to pay for the work of loading,
stowing [and trimming, had it been relevant for the cargo in question – which
it was not] including the work of lashing, securing, and dunnaging, and
discharging the cargo.

Clause 17 of the charter provided:
"Shipper/Charterers/Receivers to put the cargo on board, trim and discharge
cargo free of expense to the vessel….Trimming is understood to mean levelling
off of the top of the pile and any additional trimming required by the Master is

to be for Owners' account."

The bills of lading were in the Congenbill form incorporating
the terms of the charterparty (including clauses 3 and 17) and the Hague-Visby
Rules. The claimants argued that, once incorporated into the bills of lading,
clauses 3 and 17 of the charter were inconsistent with Article III Rule 2 of the
Hague-Visby Rules, which provides that "the carrier shall properly and
carefully load, handle, stow, carry, keep, care for, and discharge the goods
carried". As such, the clauses would be invalid under Article III Rule 8,
which renders null and void any provision in a contract of carriage relieving or
lessening the liability of the carrier as set out in the Rules.

Decision at
First InstanceAt first instance, the judge had held that, since it is the obligation
of the shipowner at common law to load, stow and discharge the cargo, clear
words would be needed if responsibility for the proper performance of this
obligation was to be transferred to the shipper/charterer/receiver. The judge
was satisfied this was the case here. Clause 17 expressly provided that certain
activities were to be carried out by the shippers/charterers/receivers and so
the responsibility for the proper performance of those tasks was transferred to
them. Although the requirement for "trimming" made no sense in the
context of a cargo of steel coils, clause 17 had to be read in conjunction with
clause 3 where the words "lashed/secured/dunnaged" clearly referred to

the cargo activities that this particular cargo would
require.

The combined effect of clauses 3 and 17 was, therefore, to
transfer the obligations to load, stow and discharge the cargo to shippers/charterers/receivers.
Consequently, the charterers could not now claim against the shipowners for any
damages alleged to have occurred during those operations.

The cargo interests’ arguments in relation to Article III Rule
2 of the Hague-Visby Rules rested on the assumption that the Rules placed an
obligation on the carrier to load, stow, carry and discharge the goods. But the
judge held that, following the judgment of the House of Lords in Renton v
Palmyra [1957] AC 149 (approving Pyrene -v- Scindia [1954] 2 QB 402), that
provision only set out the standard to which the carrier must perform those
duties, if the carrier has undertaken to perform them, which in this case it had
not. The judge therefore found that clauses 3 and 17, incorporated into the
bills of lading, effectively transferred responsibility for cargo work to the
shippers at the port of loading and to the receivers at the port of discharge.
Consequently, neither shippers nor receivers could claim against the shipowners
under the bill of lading for damage to the cargo that had occurred during the
cargo handling operations.

Judgment of the
Court of AppealThe issues to be determined on appeal were: (i) whether the charter
transferred the obligation to load, stow and discharge from owners to charterers;
(ii) the effect on the bills of lading contract of Art.III rr.2 and 8; (iii)
whether the carrier had to rely on defences under Art.IV Rule 2 of the Hague-Visby
Rules to avoid liability to the receiver for damage caused by the negligence of
the shipper in loading, stowing and securing the cargo and to the shipper for
damage caused by the negligence of the receiver in discharging it.

As regards the first issue, the court noted that there were
three facets of the cargo operation to be considered under the charter. Who is
to pay for it? Who is to carry it out? Who is liable for it not being done
properly? On the first question, the court held that the use of the word
"free" in clause 3 meant only at no cost to the shipowners and the
fact that charterers were to pay for the cargo operation did not mean that they
had also agreed to carry it out or be liable if it was done badly. As the judge
at first instance had held, "FIOST" in this case was simply a
"who is to pay" provision. As for the remaining questions, these were
determined by Clause 17. Although the word "trim" in that clause was
inappropriate, effect should be given to the rest of the clause, which clearly
imposed on the charterers the obligation to put the cargo on board and discharge
it. No trimming was required but clause 3 showed that the parties had put their
minds to what was required to stow the steel coils – namely, lashing, securing
and dunnaging. Clauses 3 and 17 could and should be read together. The parties
intended to transfer the obligation to perform all cargo work to the charterer.
If all the cargo work had to be performed by charterers, it followed that they
would be liable if it was not properly or carefully carried out.

As regards the second point, the court held that it was bound by
the House of Lords decision in Renton v Palmyra to hold that in English law
Art.III Rule 2 related only to the manner in which the obligations undertaken by
the shipowner were to be carried out. It did not oblige the shipowner to carry
out those functions, nor did it make him responsible for the manner in which
other parties carried out those functions. Therefore, the obligation under the
bills of lading for shippers/charterers/receivers to load, stow and discharge
was not invalidated by Art.III Rule 8. In this case, Clauses 3 and 17 of the
charter were intended to relieve the shipowners of all responsibility for cargo
operations. Those clauses were incorporated into the contract of carriage
contained in the bills of lading. There was no reason for denying them their
intended effect. The defendant shipowners were not responsible for any failure
of the shippers, receivers or charterers to carry out any part of the loading or
discharging operations properly or carefully.

As to the third point, the finding in point (ii) meant that the
shipowners did not need to rely on the defence of Art.IV Rule 2(i) – Act or
omission of the shipper – to avoid liability to the receivers or on the
defence of Art.IV Rule 2(q) – Any other cause arising without the actual fault
or privity of the carrier, or without the fault or neglect of the agents or
servants of the carrier – to avoid liability to the shipper.

Judgment of the House of Lords
The leading judgment was given by Lord Steyn, with whom the other four law
lords agreed. The issue before the House was whether an agreement in a contract
of carriage that transfers the responsibility for loading, stowage and discharge
from the shipowners to the shippers, charterers and consignees is invalidated by
Art.III R.8 of the Hague and Hague-Visby Rules, so as to render the shipowners
responsible for cargo loss and damage if these operations are performed
improperly or carelessly.

Lord Steyn noted that long-standing precedent is to the effect
that such a reallocation of risk by agreement is permissible and that, in these
circumstances, the carrier is not liable.

Before the House, the cargo owners argued that Art.III R.2 of
the Hague/Hague-Visby Rules imposed upon the shipowners, as carrier of the goods
under the bills of lading, the duty to perform the functions described in that
rule (which include loading, stowing and discharging the cargo) and the
responsibility for their proper and careful performance. Secondly, that the
provisions of clauses 3 and 17 of the charterparty, transferring responsibility
for those functions to the cargo interests, were invalidated by Art.III R.8.
Recognising that the decision of the House in the Renton case stood in the way
of this argument, Counsel for cargo interests invited the House to depart from
that decision under the Practice Statement (Judicial Precedent) of 1966.

The shipowners position, on the other hand, was that whilst the
carriage was subject to the Hague Visby Rules, the extent to which loading,
stowage and discharging are brought within the carrier’s obligations may
properly be a matter for agreement between the parties. Properly construed, the
Rules do not invalidate an agreement transferring to the cargo interests the
shipowner’s responsibility for those functions. Finally, they relied on the
binding authority of the decision of the House in the Renton case.

Lord Steyn noted that under the common law, the duty to load,
stow and discharge the cargo rested in the first place on the shipowners but it
could be transferred by agreement to the cargo interests. Further, that in
Pyrene v. Scindia, above, Devlin J had observed that the effect of Art.III R.2
of the Hague Rules was not to override freedom of contract to reallocate
responsibility for the functions described in that Rule. Strictly speaking, this
was an obiter dictum (not part of the reasoning on which the case was decided
and, therefore, not a binding precedent) but two years later the same point was
before the House of Lords in the Renton case, where, Lord Steyn held, the
principle set out by Devlin J. was clearly adopted as part of the ratio
decidendi (the grounds on which a case is decided) of that case.

Before considering the arguments on interpretation, Lord Steyn
noted that the rule in Renton had stood for almost fifty years and referred to
the well-known quotation from Lord Mansfield in Vallejo v. Wheeler [1774] 1 Cowp
143 to the effect that "in mercantile transactions the great object should
be certainty". That did not mean that the House would not depart from an
earlier precedent where that decision had been demonstrated to work
unsatisfactorily in the market place and to produce manifestly unjust results.
But he held that, if that high threshold requirement is not satisfied, it would
not be proper to reverse the earlier decision. In the present case, the House
was satisfied that it had not been shown that the Renton decision had worked
unsatisfactorily and led to unjust results.

On the issue of interpretation, Lord Steyn acknowledged that the
language of Art.III R.2. appears to provide for a single standard of carrying
out properly and carefully not only loading and discharging but also the caring
for the goods carried and that the French text, which for the Hague Rules was
the authoritative text, tended to support the cargo interests’ position in the
present case. On the other hand, Devlin J.’s interpretation was not based on
linguistic matters. The Hague/Hague-Visby Rules represented a pragmatic
compromise between the interests of owners, shippers and consignees. They were
designed to achieve a part harmonisation of the diverse laws of trading nations.
They achieved this by regulating freedom to contract on certain topics only. In
interpreting Art.III R.2, its purpose and context was all important. The
purposive interpretation of that Article, preferred by Devlin J., avoided the
unreasonable result of holding the shipowner responsible for the
improper/negligent performance of functions carried out by stevedores appointed
and paid for by cargo interests.

Lord Steyn concluded that it may be right to say that,
"where conflict arises between purely linguistic considerations and the
broad purpose of an international convention, the latter should generally
prevail." In his view, the case for the adoption of the Devlin
interpretation, if it were proper to consider the matter afresh today, was
"formidable" but he did not venture a "concluded view".

Returning to the issue whether a departure from Renton was
justified, Lord Steyn noted that when, in 1968, the opportunity arose to review
the operation of the Hague Rules, leading to the eventual adoption of the Hague
Visby Rules, no changes were made to the wording of Art.III R.2. One would have
expected, he said, that if Renton worked unsatisfactorily in practice, that
would have emerged at the diplomatic conference. Similarly, had there been
dissatisfaction with the effect of Renton, one would have expected British cargo
interests to have raised it when Parliament was considering the Bill which was
to become the Carriage of Goods by Sea Act 1971. But the matter was not raised
at all. Nor was there discussion of the issue in trade journals and publications
and since the decision in Renton, no academic writers had argued that it should
be reversed.

Since Renton was decided, he continued, shipowners, charterers,
shippers and consignees had acted on the basis that it correctly stated the law.
It had formed the basis of countless thousands of bills of lading, voyage
charterparties and time charterparties. "Similarly," he continued,
"insurances have been placed, Protection and Indemnity Club Rules have been
drafted and the Inter-Club New York Produce Exchange Agreement concluded…. But
for the reliance upon Renton, it is likely that different freight rates and
insurance premiums would sometimes have been charged. Moreover, at the very
least, there must be many outstanding disputes that would now be affected by a
departure from Renton." For these reasons, he concluded, that – even if
he had been convinced that the cargo owners’ interpretation of the
Hague/Hague-Visby Rules was correct, the case against departing from Renton
"is nevertheless overwhelming."

Finally, he noted another factor, namely that the operation of
the Hague/Hague-Visby Rules is under constant review, referring in particular to
the current revision of the rules governing the international carriage of goods
by sea being undertaken by the United Nations Commission on International Trade
Law – UNCITRAL – as the way "in which such problems are best
addressed". This made it, he concluded, "singularly inappropriate to
re-examine the Renton decision now."

These Case Notes have been prepared
with care, but neither the Editor nor the International and other Contributors can guarantee that they are free from error, nor
that they contain every pertinent point. Reliance should not therefore be placed
upon them without independent verification. The Editor and the International and
other
Contributors disclaim all liability
for any loss of whatsoever nature and howsoever arising as a result of others
acting or refraining from acting in reliance on the contents of this website and
the information to which it gives access. The
Editor claims copyright in the content of the website.